I just don't understand why people say "markets never lie." Didn't Soros "lie" by helping manipulate markets?
In the long run, markets do value businesses reasonably accurately. In the short run -- which can mean anything from a few days to a few years -- they are enormously influenced by mood swings. Momentum investing (the reflexive movements you refer to) involves trying to make money off the mood swings. The problem is that moods can change with blinding speed. TA is basically an effort to gauge mood and to predict upcoming mood changes. I'm just not convinced it works very well, particularly in predicting upcoming mood changes.
Value investing means betting that in the long run, mood swings will even out. The problem with value investing is that you may need to wait a long time for moods to change; and, of course, you may be wrong in your value analysis. Still, when a stock's price drops sharply, and there's no obvious bad news to explain the change, the value investor sees a likely large mood swing, and steps in and buys.
That's where I see DELL now: it has serious PMS. The quarterly report was really pretty good (remember, they met expectations), but the stock tanked on a mood swing. That will change, and DELL will move back up. The timing, of course, is hard to predict, though technical analysts will try. Not me. I'm not on margin; I don't need DELL to go up to pay the mortgage. I'll wait.
I certainly don't sell a company with strong fundamentals after it's been down 8 days in a row.
As for manipulating markets: the larger and more liquid a market is, the harder it is to manipulate. There are plenty of NASDAQ stocks that trade maybe 40,000 shares on an average day. Those can be and have been manipulated. DELL is another story. Sure, George Soros can manipulate the Indonesian currency; but even George can't do much about the dollar/yen exchange rate. Yes, analysts have some influence; but an analyst's voice is one of thousands of strings tugging at the market. Good luck getting them all to pull in the same direction; there's too great a diversity of interests. Abbe Cohen can utter her soothing nostra, but she can't be sure that people will listen. Mood swings are just plain very hard to control. |
